Multivariate LQG Control under Rational Inattention in Continuous Time
Jianjun Miao ()
No WP2019-06, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics
I propose a multivariate linear-quadratic-Gaussian control framework with rational inattention in continuous time. I propose a three-step solution procedure and numerical methods. The critical step is to transform the problem into a rate distortion problem and derive a semidefinite programming representation. I provide generalized reverse water-filling solutions for some special cases and characterize the optimal signal dimension. I apply my approach to study a consumption/saving problem and illustrate two pitfalls in the literature.
Keywords: Rational Inattention; Optimal Control; Semidefinite Programming; Consumption; Information Theory (search for similar items in EconPapers)
JEL-codes: C6 D8 E2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac, nep-ore and nep-upt
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